tag:blogger.com,1999:blog-2499715909956774229.post7487077754826297658..comments2016-12-08T18:18:28.362-08:00Comments on Stephen Williamson: New Monetarist Economics: The FOMC Sticks Out Its Neck - AgainStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-2499715909956774229.post-82031514872460031082012-01-30T12:39:28.263-08:002012-01-30T12:39:28.263-08:00Why stop at 2006 levels? Let&#39;s make house pri...Why stop at 2006 levels? Let&#39;s make house prices to go infinity! If making nominal house prices higher is good, then let&#39;s make them go even higher!<br /><br />JLD is dumber than a box of Tommy Lasordas.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-41147695316315350752012-01-28T04:09:43.151-08:002012-01-28T04:09:43.151-08:00stable prices
what is the obligation of the Fed r...stable prices<br /><br />what is the obligation of the Fed regarding housing prices?<br /><br />wouldn&#39;t we be better off if the Fed targeted increasing housing prices and reduction of private debt to (let&#39;s pick a target) 75% of GDP? After all, it was private debt that caused this Depression and until that debt is cancelled (or effectively cancelled by inflation) we will have no robust recovery, for we have no engine of either demand or growth.<br /><br />Given that the economy will not recover and become robust until housing prices are restored to 2006 levels and all our excessive private debt is canceled (reducing private debt to 75% GDP), exactly what should the Fed be doing on these two issues (which you never discuss)?JLDhttp://www.blogger.com/profile/06489381481280010964noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-30885421222731253472012-01-27T07:57:12.771-08:002012-01-27T07:57:12.771-08:00I think one can come up with many scenarios where ...I think one can come up with many scenarios where the outlook presented in FOMC forecasts is justified, including those you mention. Given this, labeling people holding these views as &quot;incompetent&quot; seems completely unjustified.<br /><br />You also raise the issue of the optimal amount of information to be released by central banks. I certainly agree with you that more information is not always better, but this doesn&#39;t imply that the amount of information currently released is excessive. Do you have a precise sense of what the optimal amount is? I can see room for more conditional forecasts as you suggest and measures of forecast uncertainty (like at the Riksbank). My (admittedly weak) prior is that the Fed is not yet releasing too much information.<br /><br />-CAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-34921600141117018312012-01-27T06:51:39.620-08:002012-01-27T06:51:39.620-08:00It is caused by ninjas. Or an unexpected change i...It is caused by ninjas. Or an unexpected change in the stock of money.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-80699794184712926712012-01-27T06:35:55.896-08:002012-01-27T06:35:55.896-08:00From one of those papers:
&quot; Given the existe...From one of those papers:<br /><br />&quot; Given the existence of nominal assets and liabilities, unexpected price-level shocks lead to a redistribution of wealth that affects aggregate output through the asymmetric labour supply responses of young and old household&quot;<br /><br />What is a price level shock?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-60159404099616529912012-01-27T03:00:22.295-08:002012-01-27T03:00:22.295-08:00&quot;This is Bank of Canada? What are the papers ...&quot;This is Bank of Canada? What are the papers that you are referring to?&quot;<br /><br />A couple of examples - <br /><br />http://www.bankofcanada.ca/2011/09/publications/research/working-paper-2011-18/<br /><br />http://www.bankofcanada.ca/wp-content/uploads/2010/06/crawford.pdfAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-42115930747736380192012-01-26T13:23:45.187-08:002012-01-26T13:23:45.187-08:00The Fed has an objective, but it is not clear if t...The Fed has an objective, but it is not clear if they know how to achieve it or whether or not it can actually be achieved. Wait, does the Fed have an objective?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-82902288008171465602012-01-26T13:08:03.913-08:002012-01-26T13:08:03.913-08:00The whole thing says:
&quot;The Board of Governor...The whole thing says:<br /><br />&quot;The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy&#39;s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.&quot;<br /><br />So why didn&#39;t they put in the part about monetary and credit aggregates? Seems they are being selective. Not that the whole thing makes any sense to me. It&#39;s not what I would write down if I were telling the Fed what to do.Stephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-16673338362259565752012-01-26T11:36:03.705-08:002012-01-26T11:36:03.705-08:00Steve:
the FOMC language on the objective of long-...Steve:<br />the FOMC language on the objective of long-term interest rates is the official mandate of the Fed:<br />http://www.federalreserve.gov/aboutthefed/section2a.htmAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-87757385589490745412012-01-26T11:02:42.564-08:002012-01-26T11:02:42.564-08:00This is Bank of Canada? What are the papers that y...This is Bank of Canada? What are the papers that you are referring to?Stephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-78747322471146726912012-01-26T10:19:41.167-08:002012-01-26T10:19:41.167-08:00&quot;if the Fed says it only cares about anticipa...&quot;if the Fed says it only cares about anticipated inflation, current inflation becomes a bygone, and the Fed doesn&#39;t care about it. It then becomes acceptable that the Fed never actually controls inflation and only makes promises to control it in the future. &quot;<br /><br />Critics of the BoE have argued this is the mistake it is making. <br /><br />What are your thoughts on the BoC&#39;s conclusions from their research on price level targeting?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-59756995925722408222012-01-26T09:45:02.179-08:002012-01-26T09:45:02.179-08:00There&#39;s an important question here, which is w...There&#39;s an important question here, which is which inflation rate to be worrying about. If it&#39;s the actual inflation rate, then over what period are we talking about: a month, a year, 10 years, or what? Or are we worried about anticipated inflation? The problem with the latter is that we cannot observe it. You can tell me it&#39;s low, as the Fed is now, but do I believe you? Further, if the Fed says it only cares about anticipated inflation, current inflation becomes a bygone, and the Fed doesn&#39;t care about it. It then becomes acceptable that the Fed never actually controls inflation and only makes promises to control it in the future. My picture is about price level targeting, which has some merit. Under a price level target, the history matters.Stephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-773324412620042342012-01-26T09:38:29.265-08:002012-01-26T09:38:29.265-08:00Actually, after thinking about this some more, tak...Actually, after thinking about this some more, take back #2 in my previous comment. You have to worry about the effect of anticipated inflation on the long rates - the Fisher effect. If the Fed extends the zero interest rate period further into the future, there will be higher inflation, and they may have to tighten more in the period beyond the extended period than was the case before. Thus, long rates could rise.Stephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-34952189850035561512012-01-26T06:35:22.196-08:002012-01-26T06:35:22.196-08:00I fail to understand why the trend line starting i...I fail to understand why the trend line starting in 2005 is a relevant gauge for inflation going forward. Perhaps because it is not as is your observation that pce inflation has been a few decimal points above 2% since 2005.<br /><br />&quot;O&quot;Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-17532843238435391262012-01-26T06:26:31.516-08:002012-01-26T06:26:31.516-08:00Under (b), there is a possible scenario with Europ...Under (b), there is a possible scenario with European sovereign defaults and financial markets going to hell again. If so, maybe I would like to see a forecast conditional on that happening, and an alternative where it doesn&#39;t. You can see where this goes. They show me a bit of information, and it just makes me more puzzled.Stephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-28215033969740068202012-01-26T06:21:07.755-08:002012-01-26T06:21:07.755-08:00Yes, the US treasury debt in my portfolio is all T...Yes, the US treasury debt in my portfolio is all TIPS.Stephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-33461795771880913342012-01-26T06:19:58.907-08:002012-01-26T06:19:58.907-08:001. It would take a lot to get the Fed to move from...1. It would take a lot to get the Fed to move from the &quot;conditional&quot; commitment. For good reason, they want you to trust them. If conditions warrant tightening before the end of 2012, it&#39;s a problem either way. (i) They actually tighten, in which case they have violated the promise, and we won&#39;t believe them the next time. (ii) They don&#39;t tighten, in which case the commitment they made today was the wrong one.<br /><br />2. Yes, if the Fed makes a surprise announcement that the policy rate will remain low for an extended period of time, a standard expectatations-theory-of-the-term-structure argument says that the nominal long bond rate goes down. Real rates are another story - that&#39;s much more complicated.Stephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-29134156562826452222012-01-26T06:17:59.686-08:002012-01-26T06:17:59.686-08:00&quot;Six participants seem more-or-less sensible,...&quot;Six participants seem more-or-less sensible, and are predicting firming in 2012 or 2013. But there are another six who are not predicting firming until 2015 or 2016. Now I&#39;m not feeling more secure. I want to panic, because those people seem to be incompetent. &quot;<br /><br />Their forecasts of future rates could differ because <br />a) they make the same forecasts, but have different interpretations of optimal policy response to those economic conditions or<br />b) they have different forecasts about future economic conditions which, even with the same policy rule, call for different policy responses.<br /><br />You seem to interpret the results only in terms of a). I suspect both a) and b) are at work. Indeed, the projected paths of UE and inflation reveal substantial differences in views among FOMC members, so I don&#39;t see why you would immediately discount b). <br /><br />- CAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-32833229382778439542012-01-26T06:17:33.950-08:002012-01-26T06:17:33.950-08:00The US 10-year breakeven rate is 2.1%. If you thin...The US 10-year breakeven rate is 2.1%. If you think this is such a bad estimate of future inflation, you should be buying TIPS and selling treasuries.Jonnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-61420150361249849542012-01-26T03:04:49.315-08:002012-01-26T03:04:49.315-08:00Hi Steve,
1) This is a conditional commitment......Hi Steve, <br /><br />1) This is a conditional commitment...right? So there is no constraint on the Fed if circumstances change.<br />2) One can argue the Fed does have some control over long(er) rates via the expectations hypothesis; I presume you think the risk premium component of long rates is more important?Anonymousnoreply@blogger.com